Tie Your Camel First, Then Trust in God - Part V Maintenance Fees

I thought every developer and property owner knew that maintenance was one of those really important things.  

1. Be sure that you understand the costs of maintenance, and
   
2. Make sure you make provisions for the payment of the same.

Especially if you live in a part of the world where the climate was particularly harsh on buildings.

I wonder if there's implicit maintenance.

Sort of like the famous implicit guarantee.   The Rene Descartes philosophy of maintenance: "I think the property is being maintained, therefore it is".

Or then again maybe Shaykh Khalifa is supposed to take care of this.  This is another thing I don't think he said he'd never do. 

This Is Getting Serious - Dubai Police Intervene For Those Who Have Not Yet Gotten The "Message"

Well, I guess some people are hard to educate (not a real surprise when the intended audience is bankers and journalists  - their past and most likely future behavior indicates a need for more than one lesson).  The sight of a badge may focus some unfocused finds.

In an official press statement carried on WAM, Lt. General Dahi Khalfan Tamim, Dubai Police Commander and Head of the Dubai Government's Budget Committee (I guess there's a logical connection there somewhere between these two positions) noted that:

1. "... in the whole region, real estate continue to be the top earning sector and that reality investors were still safe from the global slow down."
2. "Only speculative real estate investors have been affected by the slow down in the sector," he added.
3. Speaking of the budget process for next year, he remarked:  "The department heads showed remarkable efficiency in setting financial and administrative strategies that will ensure Dubai's continuous excellence," he said.
4. "Dahi Khalfan pointed out that Dubai has more than a single landmark to be proud of.  'Usually, each of the world's countries has an icon to be proud of. Dubai has many, such as Burj Dubai, Burj Al Arab, Dubai Mall, as well as Dubai International Airport and the Emirates Airlines which are seen as major drivers for tourism.' Dahi Khalfan, who also heads Dubai's Crisis management Team, stated that Dubai government had no debts issue.
5. "Dubai has rather an issue of unfair competition by some circles which seek to undermine the successful emirates and to unseat it as a global centre for finance and business and a magnet for foreign investments that thrived and succeeded in Dubai." "I noticed that Gulf and foreign media, as well as a large segment of general public, confuse between debts of Dubai government, which are almost non-existent, and the debts of local companies. This confusion should be corrected and the public should be made aware that to separate between the two types of debts." 
6. "As for the real estate sector, Dahi Khalfan said it should be referred to as a "recovering sector" for the investors who are in the market for medium and long term gains."  AA: Admittedly, I may need another lesson.  I am having trouble reconciling statements #1 and #2 above with this one.  How precisely does the market differentiate in setting a price for a "speculator" from the apparently much higher one it sets for an "investor"?

In any case it's a tradition in some of the "sophisticated" Western countries that when the sheriff speaks up, he has the last word.   As was said a little more than two weeks ago, it is time to be "quiet".  Nothing to see here.  Move along.

Central Bank of Bahrain Real Estate Exposure Limits Lifted

Reuters reports that the CBB had lifted its previously issued restriction on Bahraini financial institutions" exposure to the real estate sector.

If you read the story carefully, you'll note that the "lifting" occurred 3 or so months ago.

What makes the story worthy of comment now?

From this blog's perspective, there are two takeaways:

1. The quality of the CBB as a regulator.
2. The fundamental problem a regulator faces.

On the first , as indicated by this speech by the Governor of the CBB, H.E. Rashid al Maraj,  the CBB was aware of the risks of over exposure to this sector and  has been following this issue actively since 2005.  I can confirm  from direct knowledge that this is case.

As a general rule, the CBB is one of the better central banks in the Gulf in terms of its prudential supervision, including the identification of risks and trends.  It has a highly organized and disciplined regulatory regime comprised of regular review and quarterly updating of its regulations as well as a robust consultancy process. 

As an example of its ability to look forward, the CBB issued a regulation in 2005 (if I'm not mistaken) on consumer lending designed to prevent consumers from getting over their heads in debt. The updated regulation is included in Section CM-8.1 of the larger Credit Risk Management Module.

The CBB also took a leading role in the creation of the first central credit reporting bureau in the country (again in 2005) enabling banks to determine an individual customers' outstanding credit facilities and obligations with other financial institutions.

The second point is that regulations have to be implemented in the real world.  Often what is a  sound idea would, if implemented, lead to greater problems than not implementing it.

A glance at the financial statements of major Islamic banks in Bahrain (both conventional banks like Kuwait Finance House Bahrain and Bahrain Islamic Bank or investment banks like Gulf Finance House and others) shows the magnitude of the "facts'" that the CBB faces with implementing this regulation.   Causing banks to reduce exposures within the limit would lead to the forced sale of assets in an already distressed market.  Forcing prices down and thus directly impacting collateral values on other loans. 

The extent of the "problem" is not only a matter of credit exposure to the property and construction sector but as well equity investments in real estate or in firms with a direct exposure to that sector, e.g., construction materials, property management, etc. 

In short the CBB faces the classic regulator's dilemma:  how does one safely let the air out of an asset bubble?  One which one has been trying to contain for several years.